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The Role of Public Infrastructure for Firm Location and International Outsourcing

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Author Info
Hartmut Egger ()
Josef Falkinger ()

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Abstract

This paper presents a model in which final goods producers outsource intermediate input production. Intermediate inputs are differentiated and their production can be located at home or abroad. The model is used to examine competitive location policy in a (two-country) free trade agreement (FTA). It is shown that national public infrastructure investment has a positive effect on both the number of intermediate input producers and the return to the immobile factor in the home country. International outsourcing from home declines. Opposite effects are triggered in the partner country. In a welfare analysis we characterize national infrastructure policies that aim to maximize national income (net of tax costs) and compare the non-cooperative FTA-equilibrium with optimal policies from an integrated point of view. It is shown when coordination of competitive location policies is useful and when it is not.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 970.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_970

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Related research
Keywords: international outsourcing firm location public infrastructure welfare effects

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F15 - International Economics - - Trade - - - Economic Integration
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

This paper has been announced in the following NEP Reports:

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    Other versions:
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